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PLAN  FOR  REFORMING  THE 
ACCOUNTS,  RECORDS  AND 
REPORTS  OF  NEW  YORK  CITY 


A  REPORT  TO  THE  MERCHANTS' 
ASSOCIATION  OF  NEW  YORK  BY  ITS 
COMMITTEE  ON  TAXATION  AND  FINANCE 


J 


JANUARY     19,     1909 


The  Merchants'  Association  of  New  York 


PLAN  FOR  REFORMING  THE 
ACCOUNTS,  RECORDS  AND 
REPORTS  OF  NEW  YORK  CITY 


A  REPORT  TO  THE  MERCHANTS^ 
ASSOCIATION  OF  NEW  YORK  BY  ITS 
COMMITTEE  ON  TAXATION  AND  FINANCE 


JANUARY     I  9,    I  909 


The  Merchants'  Association  of  New  York 


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THE 
MERCHANTS'  ASSOCIATION   OF  NEW  YORK 

OFFICERS 

HENRY  R.    TOWNE,   President 
GUSTAV  H.   SCHWAB,    ist  Vice-Pres.        GUSTAV  VINTSCHGER,  Treasurer 
WM.   A.   MARBLE,   2d  Vice-Pres.  S.   C.   xMEAD,   Secretary 

ROBERT  C.   OGDEN,   3d  Vice-Pres.  FREDERICK  B.  DeBERARD,  Statistician 

JOHN  W.   GRIGGS,   Counsel 

DIRECTORS 

Nathan  Bijur 32   Nassau  St. 

Frank   R.   Chambers Rogers,  Peet  &  Co.,  Broadway  and    1 3th  St. 

J.    Hampden  Dougherty 27  William  St. 

Harry  Dowie De  Winter  &  Co.,  334  Greenwich  St. 

Thomas  H.   Downing R.  F.  Downing  &  Co.,  24  State  St. 

Prof.  Joseph   French  Johnson,  Dean,  School   of  Commerce,  Finance   and 

Accounts,  New  York  University 32  Waverley  Place 

Walter  C.   Kerr,  Pres.Westinghouse,  Church,  Kerr  &  Co.,  10  Bridge  St. 

James  H.   Killough J.  H.  Killough  &  Co.,  157  West  St. 

Charles  R.   Lamb J.  &  R.  Lamb,  23   Sixth  Ave. 

Wm.   H.   McCord Post  &  McCord,  44  East  23d  St. 

J.Crawford  McCreery, The  James  McCreery  Realty  Corp.,i  12W.  42d  St. 

Wm.  a.  Marble Vice-Pres.  R.  &  G.  Corset  Co.,  395  Broadway 

Marcus  M.   Marks David  Marks  &  Sons,  687  Broadway 

Daniel  P.    Morse President  Morse  &  Rogers,  134  Duane  St. 

RoBT.   C.   Ogden '..125  E.  56th  St. 

Albert  Plaut Lehn  &  Fink,  1 20  William  St. 

Edwin  H.   Sayre R.  C.  Williams  &  Co.,  56  Hudson  St. 

GusTAV  H.   Schwab Oelrichs  &  Co.,  5  Broadway 

Henry  R.  Towne President  Yale  &  Towne  Mfg.  Co.,  9  Murray  St. 

George  Fred'k  Vietor Victor  &  Achelis,  66  Leonard  St. 

GusTAV  ViNTSCHGER President  Markt  &  Co.,  Ltd.,  1 94  West  St. 

Silas  D.   Webb President  China  &  Japan  Trading  Co.,  32  Burling  Slip 

Clarence  Whitman Clarence  Whitman  &  Co.,  39  Leonard  St. 

F.  W.  Woolworth President  Guardian  Trust  Co.,  170  Broadway 


187252 


COMMITTEE    ON    TAXATION    AND    FINANCE 

Joseph  French  Johnson,  Chairman 
F.  A.  Vanderlip 
Herman  A.  Metz 
Robert  C.  Ogden 
Nathan   Bijur 
W.  B.  Rowland 


V 


PLAN    FOR  REFORMING 

THE  ACCOUNTS,   RECORDS  AND  REPORTS 

OF    NEW  YORK  CITY 

(Accepted  and  approved  by  Board  of  Directors,  January  21.) 

New  York,  Jan.  19,  1909. 
To  the  Board  of  Directors  of 

The  Merchants'  Association  of  New  York: 

Gentlemen  : 

XT  OUR  Committee  on  Taxation  and  Finance  reports  as  follows 
in  relation  to  the  City's  accounting  system. 
The  immense  recent  increase  in  the  City's  operating  outlays 
has  aroused  most  serious  public  concern.  In  ten  years  those  out- 
lays have  increased  from  $70,175,896.  to  $140,449,731.  A  further 
increase  of  about  $13,000,000.  has  been  appropriated  for  the 
ensuing  year.  While  the  City's  operating  outlays  have  increased 
100  per  cent,  in  ten  years,  the  population  has  increased  during 
the  same  period  but  35  per  cent. 

Collaterally  with  this  immense  increase  in  acknowledged  oper- 
ating outlays,  there  has  been  a  further  hidden  increase  which 
does  not  appear  in  the  City's  expense  account,  because  it  has 
been  covered  into  the  outlays  for  permanent  improvements. 
Every  year  considerable  sums  raised  by  the  sale  of  bonds,  osten- 
sibly for  permanent  improvements  and  included  in  the  public 
debt,  are  applied  to  operating  expenses.  In  these  cases  the  orig- 
inal expense  outlay  is  increased  by  continuing  interest  charges, 
which  by  the  time  the  bonds  are  paid,  equal  approximately  50 
per  cent,  of  the  original  amount. 

While  it  is  probably  true  that  a  part  of  the  increase  in  operat- 
ing expenses  noted  is  legitimate  and  necessary,  it  has  been  con- 
clusively shown  by  recent  investigations  of  the  Commissioners 
of  Accounts,  the  Comptroller,  and  num.erous  extra-official  bodies, 


that  much  of  the  increase  is  traceable  to  waste.  The  opportuni- 
ties for  this  waste  arise  primarily  from  the  absence  of  an  effec- 
tive system  of  departmental  operating  and  statistical  records  and 
analytical  accounts. 

In  the  successful  conduct  of  large  corporations  highly  spe- 
cialized operating  records  are  found  indispensable  for  determining 
the  outlays  of  services,  time  and  materials  properly  required  for 
producing  a  given  result.  Such  operating  records  develop  units 
of  cost  and  accurate  standards  of  comparison,  and  thereby  expose 
any  element  of  waste.  Without  such  records,  intelligent  control 
of  outlays  is  impossible.  In  default  of  them  endless  oppor- 
tunities are  afforded  for  waste,  extravagance  and  even  corruption. 

Many  concrete  examples  to  illustrate  this  might  be  cited. 
Among  them  are  the  following: 

In  the  recent  examination  by  the  Commissioners  of  Accounts 
of  the  affairs  of  the  Borough  of  the  Bronx,  it  was  developed 
that  no  proper  records  were  kept  with  a  view  to  securing  economy 
and  efficiency  in  the  care  of  the  sewers,  the  repair  and  mainte- 
nance of  certain  classes  of  streets,  and  the  care  of  public  buildings. 
It  was  further  developed  that  the  labor  cost  in  the  care  of  streets 
was  from  200  to  900  per  cent,  in  excess  of  the  proper  cost ;  and 
in  the  care  of  sewers,  over  100  per  cent,  in  excess.  It  was 
shown  that  six  watchmen,  doing  no  other  work,  were  employed 
to  watch  two  adjoining  offices.  To  keep  clean  the  Municipal 
Building,  with  52  rooms,  33  cleaners  were  employed  at  a  cost  of 
$402.18  per  year  for  each  room;  the  average  yearly  cost  of  keep- 
ing clean  similar  rooms  in  a  large  private  office  building  being 
$20.07. 

The  significant  fact  is  that  these  outlays  were  authorized  by 
the  Board  of  Estimate  and  Apportionment  in  the  form  of  lump 
sum  appropriations,  on  the  recommendation  of  the  Borough  Pres- 
ident ;  and  that  in  the  absence  of  analytical  records  the  Board  of 
Estimate  and  Apportionment  could  not  possibly  detect  the  waste- 
fulness of  the  outlays  to  which  it  gave  its  approval. 

No  intelligent  person  of  business  experience  will  dispute  the 
proposition  that  economy  and  efficiency  in  business  management 
is  impossible  without  the  aid  of  suitable  analytical  records  and 
accounts  based  thereon,  adapted  to  show  in  detail  the  elements  of 

6 


cost  entering  into  each  outlay,  to  afford  standards  of  comparison, 
and  to  exhibit  the  economic  results  attained  by  such  outlay. 

The  City  of  New  York  has  no  comprehensive  system  of  an- 
alytical records  and  accounts  adapted  to  the  promotion  of  econom- 
ical administration,  and  your  Committee  believes  that  the  waste 
which  has  been  shown  to  exist  cannot  be  permanently  prevented 
and  the  present  excessive  operating  outlays  reduced  to  a  normal 
and  legitimate  basis  without  a  fundamental  reorganization  of  the 
City's  accounting  methods,  which  shall  provide 

I :  Controlling  and  Summary  Accounts  in  the  Department  of 
Finance. 

2 :  Departmental  operating  and  statistical  records  and  reports 
which  shall  exhibit  all  operations  in  detail  with  refer- 
ence to  their  efficiency  and  economy. 

3:  Departmental  accounts  correlated  with  the  operating 
records. 

HP  HE  necessity  for  a  searching  reform  of  the  City's  accounting 
system  is  conceded  by  the  City  authorities,  and  a  creditable 
beginning  has  in  fact  been  made  by  the  Department  of  Finance 
with  the  extra-official  aid  of  the  Bureau  of  Municipal  Research. 
It  is  admitted  by  the  Comptroller  that  to  complete  the  task  will 
require  the  services  of  a  large  staff  of  specially  qualified  experts 
during  a  period  of  several  years.  It  has  further  been  demon- 
strated that  political  influences  are  actively  opposed  to  this  re- 
form, and  that  by  the  operation  of  those  influences  the  Comp- 
troller was  for  a  long  time  prevented  from  retaining  the  services 
of  necessary  experts. 

The  existing  condition  of  obscurity  and  confusion  is  peculiarly 
favorable  to  abuses  which  have  their  root  in  political  favoritism 
and  the  reform  proposed  will  tend  to  destroy  those  abuses.  It 
may,  therefore,  be  reasonably  anticipated  that  the  political  inter- 
ests which  are  threatened  will,  in  the  future,  as  in  the ,  past, 
covertly  impede  the  proposed  reform.  It  has  been  shown  that 
even  when  the  incumbent  of  the  Comptrollership  is  in  sympathy 
with  the  work  of  reform,  his  purpose  may  be  obstructed  by  the 
withholding  of  appropriations  and  lack  of  co-operation.    Assum- 


ing  a  Comptroller  subject  to  hostile  political  dictation,  it  is  obvious 
that  no  genuine  reform  would  be  effected. 

Your  Committee  therefore  believes  that  the  reform  of  the 
City's  accounting  should  be  entrusted  to  a  temporary  special 
Commission  to  be  created  under  an  Act  of  the  Legislature,  clothed 
with  such  power  as  to  be  absolutely  secure  against  adverse  influ- 
ence or  obstruction  until  its  work  is  completed;  and  a  plan  for 
such  a  Commission  is  submitted: 

Plan  for  a 

Commission  to  Devise  and  Instal  a  System  of  Accounts, 

Operating  and  Statistical  Records  and  Reports 

FOR  THE  City  of  New  York. 

Number  and  Qualifications. 

Five  or  seven  members.  Preferably  business  men  of  high 
standing  and  of  proved  ability  in  the  management  of  large  busi- 
ness affairs.    In  addition,  Comptroller  to  be  ex-officio  a  member. 

Appointments  and  Tenure. 

Appointments  to  be  made  by  Comptroller.  Vacancies  to  be 
filled  by  remaining  members.     Tenure  during  good  behavior. 

Duration  of  Existence  of  Commission. 

Until  completion  of  work,  but  not  to  exceed  five  years. 

Compensation  of  Commissioners, 
To  be  fixed  by  Supreme  Court. 

Powers  and  Duties  of  Commissioners. 

To  appoint,  and  fix  the  compensation  of,  a  secretary,  counsel, 
accountants,  engineers,  clerks,  and  such  other  assistants  as  may 
be  necessary,  such  appointments  to  be  exempted  from  the  provi- 
sions of  the  Civil  Service  Laws. 

To  examine  into  the  functions,  organization  and  operation 
of  every  division  of  the  City  Government,  including  the  local 
Courts,  and  those  parts  of  the  County  Governments  whose  ex- 
penses are  paid  by  the  City. 

To  subpoena  and  examine  under  oath  any  City  official  or 
employee. 

S 


To  examine  the  books  and  papers  of  any  City  office  (or  County 
office  as  aforesaid). 
To  devise : 

(a)  A  system  of  controlling  accounts  for  the  Department 
of  Finance. 

(b)  A  system  of  operating  accounts  for  each  Department, 
Bureau,  Board,  Commission  or  other  division  of  the  City  Gov- 
ernment. 

(c)  A  system  of  operating  records  for  each  division  (as 
above)  adapted  to  show  all  the  physical  facts  affecting  efficiency 
and  economy. 

(d)  A  system  of  reports  for  each  division  which  shall  set 
forth  in  prescribed  tabular  and  statistical  form,  for  each  fiscal 
period,  and  in  comparative  form  for  a  series  of  years,  in  sum- 
mary and  in  detail,  all  the  financial,  operating  and  physical  de- 
tails pertinent  to  a  full  exhibit  of  the  efficiency  and  economy 
with  which  the  division  is  administered. 

(e)  To  instal  and  put  in  operation  in  each  division  as 
speedily  as  practicable,  the  systems  and  forms  so  devised. 

Devolution. 

Upon  completion  and  installation  of  a  complete  system  of 
accounts,  operating  records  and  reports  for  each  division  of  the 
City  Goverment,  the  existence  of  the  Commission  to  terminate 
and  the  supervision,  maintenance  and  modification  of  the  system 
devised  by  the  Commission  to  thereafter  devolve  upon  a  Bureau 
of  the  Department  of  Finance. 

Expenses  and  Disbursements. 

The  Commission,  from  time  to  time,  to  certify  to  the  Board 
of  Estimate  and  Apportionment  the  sums  of  money  required  by 
the  Commission  for  the  proper  prosecution  of  its  work,  and  the 
Board  of  Estimate  and  Apportionment  to  be  required  thereupon 
forthwith  to  appropriate  such  sums  for  the  uses  of  the  Commis- 
sion. Disbursements  to  be  made  by  the  Comptroller  from  such 
appropriations,  upon  certificate  of  the  Commission. 


VOUR  Committee  is  of  the  opinion  that  a  Commission  of 
prominent  business  men  would  be  best  qualified  for  the 
end  in  view,  and  most  satisfactory  to  the  public;  and  it  suggests 
that  in  the  event  of  the  authorization  of  such  a  Commission,  the 
Comptroller  would  doubtless  be  willing  to  select  the  appointees 
from  names  submitted  to  him  by  a  number  of  the  principal  busi- 
ness and  civic  organizations  of  the  City. 

Your  Committee  calls  attention  to  the  highly  efficient  aid 
afforded  to  the  Comptroller  by  the  Bureau  of  Municipal  Research 
in  revealing  existing  defects  in  the  City's  financial  and  business 
methods ;  and  also  to  the  valuable  aid  which  it  has  given  to  the 
Comptroller  in  devising  and  installing  improved  accounting 
methods  in  the  Department  of  Finance  and  through  it  in  the  other 
City  Departments.  It  is  the  opinion  of  your  Committee  that  the 
entire  reorganization  of  the  City's  accounting  system  could  be 
effectively  done  by  that  Bureau  (which  is  an  extra-official  body, 
without  legal  powers)  provided  that  it  could  be  assured  of  the 
support  of  future  Comptrollers  and  guaranteed  against  obstruc- 
tive influences. 

We  therefore  recommend  that  there  be  prepared  and  presented 
to  the  Legislature  a  Bill  for  a  temporary  Commission  to  devise 
a  system  of  accounts  and  of  operating  and  statistical  records  and 
reports  for  the  City  of  New  York,  in  accordance  with  the  plan 
set  forth  above. 

Your  Committee  further  recommends  that  if  this  Report  be 
approved  by  you,  it  be  referred  back  to  your  Committee  with 
power  to  act  when  and  if  your  Committee  thinks  expedient. 
All  of  which  is  respectfully  submitted. 

Joseph  French  Johnson,  Chairman, 

F.  A.  Vanderlip, 

Nathan  Bijur, 

Herman  A.  Metz, 

William  B.  Rowland, 

Robert  C.  Ogden. 


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